Q&A With Charles Riotto: Licensing Continues To Make Strides As New Trends Emerge

NEW YORK CITY - There can be little doubt that licensing is big business'and getting bigger by the year. In 2002, for example, licensing generated nearly $6 billion in royalty revenues to show an increase of more than $200 million. That's not sales, but just royalties , a percentage , of the products sold. Total sales of licensed products are estimated to be more than $150 billion worldwide.

And, while licensed bulk vending products account for only a tiny fraction of these sales, it is worth noting that some of the best-selling products over the past few years have been licensed. These include "Homies" in the capsuled category and "SpongeBob SquarePants" along with "Yu-Gi-Oh" cards and stickers in the flat vend segment.

To gain additional insight into this growing product category, VT sat down with Charles Riotto, president of the International Licensing Industry Merchandisers' Association (LIMA), the main trade organization for the worldwide licensing business.

VT: Your organization recently hosted its annual show here in New York. What kind of turnout did you get?

I think by everyone's account, it was an excellent show. Our attendance surpassed 20,200 , an all time high , which is about 15% over the previous year, and our exhibit space grew about 12%. Also our conference program was the best attended that we ever had. We also had about 850 people attend the LIMA Awards Banquet. But most importantly, the mood throughout the show was very upbeat and positive. There's a very good feeling throughout the industry about the future and the overall condition of the industry.

And we're not in the best of economies right now. Did the turnout at the show surprise you?

To be perfectly honest I was pleasantly surprised by the results of the show. But I think in some ways a sluggish economy can actually be a positive influence on the licensing industry. Particularly in the areas of corporate brand licensing, where companies are looking for whatever edge they can possibly get to gain an advantage over their competition. For instance, almost every major automobile company has a licensing program, and it goes way beyond t-shirts, coffee mugs, trinkets and things like that. We're talking brand extensions, taking well-known brand names and licensing them on to different, but related product categories. This gives the core product a tremendous amount of additional exposure and at the same time creates a revenue stream for the brand holder. So in these difficult economic times, licensing is being used more and more as a viable marketing strategy in order to create better awareness and develop additional revenues.

Does this growth also hold true in the toy category?

I see more licensing going on in the toy business. By our estimates, more than 50% of the dollar volume of all toys sold in the U.S. goes to licensed products.

What accounts for this?

Kids usually don't go into the toy store looking for a generic action figure or a generic board game. Licensed characters are what they know best. It's what they see on television. It's what they see in the movies. And it's what they want. Licensing brings these characters to life for them. It's what drives sales. Retailers understand that and are devoting more of their shelf space to licensed toys. In essence licensing drives the toy industry today.

You mentioned television and movies. Are those the primary origins of the most popular licenses?

I can tell you with certainty that last year a lot of the toy licenses were driven by movies, with Spiderman being far and away the major license of the year for 2002. Star Wars was also a very strong license. There are some excellent television licenses as well. It has spread out among movie fans and television, but it even goes into publishing, if you consider Harry Potter a publishing property. Sports plays a strong role, but probably to a lesser degree.Lately, we're seeing an increasing number of characters originating from video games and other interactive media.

There's a lot of talk regarding "corporate licensing." You mentioned the auto industry, for example. Has there been a trend of corporate licensing in the toy business?

It's a slow moving trend. The toy category makes up only about 8% of all sales of corporate branded licensed merchandise. Right now, it's still pretty heavily weighted in apparel, food and beverage, but more and more corporations are looking at the toy industry to see where it has application to their products. Probably the automobile industry would come to mind first, with model kits, miniatures and things like that. MTV has a line of karaoke machines that I would put in the toy category. Some of the other cable networks also have licensing programs. The Weather Channel has toy weather stations. This all makes sense, since you are developing loyalty in the brand at a very early age. So for a corporation to look into toy products certainly makes a great deal of sense.

What trends do you see emerging in the pre-teen, tween and teen markets?

Well, you definitely see celebrity licensing and certainly rock stars. Britney Spears has a licensing program. So does Jennifer Lopez. Lots of other rock stars and entertainers are also looking toward licensing. There's definitely a revenue stream to be tapped. We're also seeing a lot of movement in the retro area and surprisingly, a lot of those properties in the teen and tween markets. For instance, "Care Bears" seem to be very popular with teenage girls. "Strawberry Shortcake" has also caught on. These are properties that had a very successful run and then dropped out of sight. Now they've been re-introduced and are finding a market. So I'd say that the retro-direction is definitely a trend right now.

Are the licensors becoming more aggressive? Does that account for some of the growth we're seeing?

I think they are in a sense. I think they've actually become a little more flexible in their dealings with licensees. I believe we're seeing a little softening in royalty demands and guarantee demands. I think they're realizing that this helps to make the licensing process a win situation for all the parties. When a licensee is successful, it's good for the entire licensing program in the long run. I think that licensors are taking more of a long-term approach and looking to develop their properties more as franchise properties, and less so as one-shot hits.

Do you have any examples of this?

Of course. In in movies, for example, we're seeing a lot of from licensors, especially in the studio category, is using licensing as a bridge from the original movie to the sequel. Some of them no longer flood the market with merchandise all at one time. We're seeing a more controlled release , a more staggered release of merchandise , where certain merchandise that has been in the market is pulled back and new, fresh merchandise is released along with video games, books, and other things that help extend the life cycle of the product until the sequel comes out.

This sounds as if they're adopting a program similar to advertising. Using the merchandise to promote the primary product.

I think the advertising analogy is a very good one. The thought behind their strategy is to create more of a long-term brand, rather than just trying to milk a hot property for a short period of time.

Does the fact that there might be a softening of "up front" fees and royalties mean we'll see more licensed products in the marketplace over the next few years?

That remains to be seen. It's difficult to say. The decision is ultimately made by the retailers. I think if licensed merchandise continues to perform well at retail, then retailers will be more open to committing shelf space to it. However, I think we're definitely heading in that direction.

Do you see more niche products succeeding? Perhaps products which appeal to specific demographics?

I do. Every year there is a handful of big, well-performing licenses, but beyond that there is a lot of niche marketing going on. You don't have to be a Spiderman to have a successful licensing program. There are lucrative niches that can be addressed and can make for a successful program. For instance, the Hispanic market. If you look at the population demographics, you'll see the Hispanic population is growing rapidly and has become a very influential force in the marketplace. So marketing to that demographic is something that a lot of licensors are heavily into right now.